I agree with AmeliesUncle - the program is wrong - in that it's not picking up the fact that you're taking the Standard Deduction. Ignoring casualty losses to make it easier to grasp, IRC Sec 280...
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I agree with AmeliesUncle - the program is wrong - in that it's not picking up the fact that you're taking the Standard Deduction. Ignoring casualty losses to make it easier to grasp, IRC Sec 280A requires an ordering of expenses related to vacation home into 3 tiers. Tier 1 expenses can result in reporting a loss on Sch E. Tier 2 expenses are limited to remaining income after deducting Tier 1, and Tier 3 expenses are then limited to remaining income after deduction Tier 2 expenses. Carryovers of nondeductible expenses are available for those that were limited to offset any future profit from the rental activity. Tier 1 expenses include (1) expenses directly related to the rental income produced, such as those management fees (assuming those are solely related to bookings, etc.), and (2) mortgage interest and real estate taxes THAT ARE OTHERWISE DEDUCTIBLE. This means you'd be itemizing your deductions and any mortgage interest and real estate taxes would be deducted there even if you were not using the property as a vacation home with rental income. Tier 1 expenses are fully deductible on Sch E (see Worksheet 5-1 of IRS Publication 527 Personal Use of Dwelling Unit (Including Vacation Home), which means a loss could be reported. Tier 2 expenses are all the other common expenses that are allocated between rental and personal use, OTHER THAN DEPRECIATION. Pub 527 Worksheet 5-1 specifically directs you to NOT include those real estate taxes on Line 2b of the worksheet IF YOUR ARE TAKING THE STANDARD DEDUCTION. Thus, when taking the standard deduction, real estate taxes move from Tier 1 (line 2b) to Tier 2 (line 4c). This means that the rental portion of your real estate taxes would be limited in the same manner as those other common expenses. Tier 3 is depreciation on the rental portion of the property. Since this is already a lengthy discussion and not relevant to your question at hand, I'll pass on further elaboration. So, here are a couple possible outcomes: (1) maybe the TurboTax calculation is waiting until you've clearly indicated that you are taking the Standard Deduction (not itemizing) and it will magically go back and correct the numbers on Sch E to not produce a loss; or (2) the program has an error. If (2), in theory it's an easy fix for the techies - simply include a question in the Sch E worksheet asking if you'll be taking the standard deduction or itemizing. (TurboTax - you owe me a fee for that ;-)).